If you talk about a hard landing in China, you talk about GDP growth of 5%, not minus 5% or minus 15%. The Chinese government prints money. It can build superfast railways and overbuild airports, because the rest of the economy can subsidise it. China’s swollen public sector is directing asset allocation, rather than pursuing profit maximization. They see [their system] as a success. But it creates a bubble, which can prove quite damaging…

But the sum of all my fears would be China having a real hard landing of minus 5% or minus 10% GDP growth.

Betting on a devastating hard landing is difficult as it could result in anything from hyperdeflation to hyperinflation. Thus Hendry is making a tangential bet, buying CDS swaps on Japanese corporations that would get destroyed in a China crash.

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